The application and definition of the concept of absolute and permanent disability under life insurance policies have been the subject of considerable judicial debate and have recently been reconsidered by the Portuguese Supreme Court of Justice (Supremo Tribunal de Justiça, hereinafter the “STJ”). In its judgment of 18 September 2025, the STJ held that explaining the scope and content of this concept is essential if insurers are to rely upon it.
The dispute concerned two life and disability insurance policies taken out in December 2014 in connection with bank financing arrangements. The special conditions provided that absolute and permanent disability existed where the insured person was totally unable to engage in any gainful occupation and, cumulatively, required the assistance of a third party to perform ordinary activities of daily living.
It was established that the clause had been read to the insured person, but that no additional explanation of its meaning had been provided. The general and special conditions were only delivered after the insurance proposals had been signed.
Following the occurrence of the insured event, the insured person was assessed as having a permanent partial disability of 88.2252% and as being permanently and totally unable to perform his usual occupation. The insurer declined cover on the basis that not all the contractual requirements for absolute and permanent disability had been met.
The Porto Court of Appeal (Tribunal da Relação do Porto), however, held that the duties of communication and clarification had not been duly complied with, disregarded the contractual definition and ordered the insurer to pay the sums insured.
The central aspect of the judgment lies in the distinction between the duties of communication and information laid down in Articles 5 and 6 of Portuguese Decree-Law No. 446/85 of 25 October.
The duty of communication requires contractual terms to be provided in an appropriate manner and sufficiently in advance to enable the contracting party to acquire full and effective knowledge of their content. The duty to provide information, in turn, requires clarification of aspects whose proper understanding so requires, as well as answers to questions reasonably raised by the adhering party.
This distinction is particularly relevant in insurance contracts. An expression may appear clear according to its ordinary meaning while having a considerably narrower scope under the policy terms.
This is the case where disability cover depends not merely on the inability to perform the insured person’s usual occupation, but also requires an inability to engage in any gainful occupation and dependence on a third party. In such circumstances, merely providing or reading the clause may not be sufficient to establish that the policyholder or insured person effectively understood the scope of the cover taken out.
Under Article 8 of the Portuguese legal framework governing standard contractual terms, clauses that have not been duly communicated may be excluded from the contract. The same may apply to clauses in respect of which a failure to comply with the duty to provide information prevented the adhering party from acquiring effective knowledge of their meaning and scope.
The STJ also provides an important clarification: where the contractual definition of absolute and permanent disability is excluded because its meaning was not duly explained, its content cannot subsequently be restored through the interpretation of the remaining provisions of the contract. Otherwise, interpretation would lead to the very same outcome that the exclusion of the clause was intended to prevent.
The judgment does not, however, equate absolute and permanent disability automatically with an inability to perform the insured person’s usual occupation. The assessment must take into account the insured person’s specific limitations, qualifications and actual ability to engage in another occupation capable of providing a comparable level of income. Nor is it sufficient to rely upon an abstract or merely residual capacity to perform some other occupation.
This approach is consistent with the judgments of the Portuguese Supreme Court of Justice of 27 February 2020, delivered in proceedings No. 125/13.2TVPRT.P1.S2, and of 11 February 2025, delivered in proceedings No. 795/19.8T8PVZ.P1.S1.
Portuguese case law has therefore favoured a specific and functional assessment of incapacity rather than an approach based exclusively on a medico-legal percentage or a theoretical possibility of professional retraining.
In the case under consideration, the insurer also argued that the removal of the definition of absolute and permanent disability should result in the invalidity of the insurance contracts in their entirety. The STJ did not accept this argument.
According to the Court, Article 9 of Portuguese Decree-Law No. 446/85 establishes, as a general rule, the preservation of the contract following the exclusion of terms that have not been validly incorporated.
Total invalidity is exceptional and requires the continued existence of the contract to result in an imbalance between the parties’ respective obligations that is seriously contrary to the principle of good faith. Accordingly, it is not sufficient merely to argue that the premium was calculated on the basis of a particular limitation of cover.
Where the insurer seeks to establish a relevant economic imbalance, it must specifically plead and prove the impact that excluding the relevant clause would have on the contractual balance.
The judgment provides clear practical guidance for product design, insurance distribution and claims handling.
- First, it is necessary to distinguish between evidence that the clause was communicated and evidence that its meaning was adequately explained. Providing the policy terms is essential, but may not be sufficient where technical concepts or cover subject to particularly stringent requirements are involved.
- Second, the greater the difference between the ordinary meaning of the name given to the cover and its contractual scope, the greater the care that should be taken when explaining the requirements for cover. In absolute and permanent disability cover, it should be made clear whether entitlement to the benefit depends on the inability to engage in any gainful occupation, the need for third-party assistance, or the cumulative satisfaction of both requirements.
- Third, underwriting and distribution procedures should ensure that appropriate evidence of the contracting process is retained, including the date and circumstances in which the policy terms were provided, the information supplied, any additional explanations given and any relevant statements made by the policyholder or insured person. Such evidence may prove decisive in the event of litigation.
- Lastly, the judgment calls for caution when assessing residual work capacity. The issue cannot be determined solely by reference to an abstract possibility of performing some other occupation. The insured person’s age, education and training, professional background, functional limitations and actual ability to earn an income must also be taken into consideration.
In conclusion, the judgment of the Portuguese Supreme Court of Justice of 18 September 2025 confirms that the scope of insurance cover does not depend exclusively upon the wording of the policy terms. It also depends on the manner in which those terms are presented and explained to the adhering party.
The key principle arising from the judgment is straightforward: where a contractual definition is excluded because it was not adequately explained, its content cannot subsequently be reintroduced through contractual interpretation.
The assessment of disability must therefore be carried out on a case-by-case basis, taking into account the actual impact of the insured person’s limitations on their professional life and their effective capacity to earn an income.
For insurers and insurance distributors, the prevention of legal risk should therefore rest on three fundamental elements: clear drafting, adequate explanation and proper documentary evidence of the underwriting and contracting process.
In forms of cover where a single contractual definition may determine whether or not protection is available in the event of a serious disability, these requirements are no longer merely formal. They become essential to the effective and enforceable delimitation of insurance cover.
Belzuz Abogados, S.L.P., through its legal team, provides advice on identifying potential legal risks in insurance products of this nature, as well as on the handling of claims involving these issues.